Banks feel the regulatory heat as RBI imposes penalties amid pandemic shadow, BFSI News, ET BFSI
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In the first half of this year, the central bank has imposed fines of over Rs 43 crore on 23 banks for various regulatory non-compliances and lapses. The RBI had imposed a fine of Rs 20 crore on eight banks in 2020.
After the Nirav Modi scam, RBI had stepped up its surveillance and imposed a hefty Rs 143 crore fine on 49 banks in 2019. While the amount of fine was small individually in 2019, the RBI has increased it multifold as it has fined HDFC BankRs 10 crore, Bank of India Rs 4 core, Punjab National Bank Rs 2 crore and SBI Rs 50 lakh.
In January this year, the central bank had imposed Rs 2 crore penalties on Deutsche Bank and Standard Chartered Bank. It has imposed penalties on various cooperative banks during the year.
Risk based supervison
In May this year the Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.
The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.
“It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.
In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).
“It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.
Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).
The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.
The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.
In the case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.
A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.
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